**Monetary Policy Framework Transformation Steadily Advances, Providing Strong Support for High-Quality Development**
As 2025 marks the final year of the "14th Five-Year Plan," China's financial system reform has deepened comprehensively over the past five years under strong Party leadership. Financial services to the real economy have significantly improved in quality and efficiency, financial risks in key areas have been resolved in an orderly manner, and financial sector reform and opening-up have continued to advance, achieving new major accomplishments in financial development.
"We have maintained a supportive monetary policy stance, with the modern monetary policy framework with Chinese characteristics taking initial shape, achieving more effective implementation and transmission, and helping to successfully complete the main economic and social development goals of the '14th Five-Year Plan,'" said Pan Gongsheng, Governor of the People's Bank of China, at a State Council Information Office press conference in September 2025.
From nine reserve requirement ratio cuts releasing 7 trillion yuan in long-term liquidity to structural tools covering the financial "five major articles," from clarifying the 7-day reverse repo rate as the policy rate to establishing an institutionalized monetary policy communication mechanism, a series of solid measures have collectively outlined the construction trajectory of a modern central banking system, delivering an impressive report card of "stable total volume, optimized structure, reduced costs, and stable expectations."
**Comprehensive Use of Monetary Policy Tools to Maintain Total Volume and Structural Balance**
Since the "14th Five-Year Plan," the People's Bank of China has earnestly implemented Party Central Committee and State Council decisions, improved the modern monetary policy framework with Chinese characteristics, and focused on leveraging the dual functions of monetary policy tools in both total volume and structural aspects.
**Total Volume Tools:** The central bank has implemented nine reserve requirement ratio cuts, cumulatively reducing the required reserve ratio by 3.5 percentage points and providing approximately 7 trillion yuan in long-term liquidity. Multiple monetary policy tools have been comprehensively utilized to flexibly adjust short- and medium-term liquidity, including enriching the monetary policy toolkit through open market government bond trading and outright reverse repo operations.
**Structural Tools:** The bank has continuously improved the structural monetary policy tool system, adhering to the basic principle of "focusing on key areas, being reasonable and moderate, with advances and retreats." Various structural monetary policy tools have been created and implemented to support areas such as technological innovation, green development, and service consumption, achieving full coverage of the financial "five major articles."
The monetary policy regulation during the "14th Five-Year Plan" period has achieved good results: Financial aggregates have grown reasonably, with annual growth rates of social financing scale and broad money supply (M2) both reaching around 9-10%, significantly higher than the 6-7% nominal economic growth rate. Social comprehensive financing costs have declined to low levels, with newly issued corporate loans and personal housing loan rates at approximately 3.1% in August 2025, down about 1.5 and 2.3 percentage points respectively from the end of 2020.
**Deepening Interest Rate Marketization Reform**
During the "14th Five-Year Plan" period, the People's Bank of China has continued to deepen interest rate marketization reform and improve price-based monetary policy regulation mechanisms with significant achievements.
**Enhanced Market-oriented Interest Rate Regulation:** In July 2024, the central bank clarified that the 7-day reverse repo rate in open market operations serves as the policy rate, rationalizing the transmission relationship from short-term to long-term rates.
**Increased Market-oriented Interest Rates:** A deposit rate marketization adjustment mechanism was established in April 2022. In May 2024, the nationwide lower limit on personal housing loan rates was removed, achieving basic marketization of commercial loan rates. In September 2024, the housing loan rate pricing mechanism was improved to promote coordinated adjustment of existing and newly issued housing loan rates.
**Significant Decline in Real Economy Financing Costs:** Since the "14th Five-Year Plan," policy rates have been cumulatively reduced by 0.8 percentage points, leading the 1-year and 5-year LPR to decline by 0.85 and 1.15 percentage points respectively. In August 2025, the weighted average rates for newly issued corporate and personal housing loans remained at approximately 3.1%, continuing to maintain low levels.
**Maintaining RMB Exchange Rate Basic Stability**
During the "14th Five-Year Plan" period, China's foreign exchange market has demonstrated strong resilience, with the RMB exchange rate maintaining basic stability at a reasonable and balanced level.
**Market-Determined Exchange Rate:** The bank has steadily deepened exchange rate marketization reform, with RMB exchange rate flexibility significantly enhanced. The average annualized volatility has remained around 4%, with two-way fluctuation becoming the norm. The RMB exchange rate has effectively functioned as an automatic stabilizer for the macroeconomy and balance of payments.
**Managed Floating Exchange Rate System:** The managed floating exchange rate system based on market supply and demand with reference to a basket of currencies suits China's national conditions. The central bank has implemented comprehensive measures to strengthen expectation guidance and prevent exchange rate overshooting risks.
**Risk-Neutral Concept:** The central bank and State Administration of Foreign Exchange have continuously guided enterprises and financial institutions to establish risk-neutral concepts. In September 2025, the corporate foreign exchange hedging ratio was approximately 30%, significantly higher than 17% in 2020.
Looking ahead, China's macroeconomic fundamentals remain solid, with the balance of payments expected to maintain autonomous equilibrium, providing a solid foundation for medium- and long-term exchange rate stability. The central bank will continue to uphold the market's decisive role in exchange rate formation, maintain exchange rate flexibility, strengthen expectation guidance, prevent exchange rate overshooting risks, and maintain the RMB exchange rate's basic stability at reasonable and balanced levels.
**Establishing Institutionalized Monetary Policy Communication Mechanism**
During the "14th Five-Year Plan" period, the People's Bank of China has continuously innovated mechanisms and strengthened effective communication with markets through various means:
**Authoritative Policy Release:** Leadership has frequently attended State Council Information Office press conferences and released comprehensive monetary and financial policies. Deep exchanges with markets have been strengthened through forums such as the Lujiazui Forum and Financial Street Forum.
**Normalized Expectation Management:** Daily publication of open market operation transaction announcements, monthly release of important financial data, and quarterly publication of the "China Monetary Policy Implementation Report" and Monetary Policy Committee meeting press releases help markets accurately understand monetary policy directions.
**Financial Data Interpretation:** Timely data interpretation and policy promotion are conducted in combination with data changes and market focus points.
**International Communication:** China's macroeconomic and financial situation is promoted through International Monetary Fund (IMF) and Bank for International Settlements (BIS) meetings to enhance communication, understanding, and international investor confidence.
Through unremitting efforts, China's monetary policy transparency has steadily improved in recent years, with enhanced policy comprehensibility and authority, significantly improved policy transmission effects, and accumulated valuable experience in expectation management work.
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